ado research, major re rate on the way, page-44

Maddoc: (What I'm struggling with is how to value the company. It does seem ii could be mutliples of todays value (if? when?) they get a couple of majors signed up.)

i'm also unsure how to value ADO, below is imo. would appreciate what are you guys views on this.


so do we value the coy using PE or assume a value for ADO's tech?


this is an excerpt taken from an article with regards to PE in the biotech sector.

"We`re willing to pay a higher P/E ratio for companies that are growing at 30 to 40 percent per year than companies growing at 10 to 15 percent," says Lee Kopp, one of the nation`s top ranked money managers the past 10 years."

Kopp says that, to be fairly priced, a stock`s P/E should roughly reflect its earnings growth rate. "The suggestion from Wall Street is that if the earnings are growing at 30 to 40 percent, you can apply a 30 to 40 P/E multiplier. If it`s growing at 15 percent per year, you can apply a 15 P/E multiplier."

But Kopp concedes that selecting stocks based on P/E ratios can be tricky. "When you look at P/E ratios, every industry has a different average," explains Kopp. "The biotech industry may sell at an infinite price-earnings ratio because there may not be any earnings. A more mundane industry might sell at an average P/E ratio of seven. So you really have to look at the average of that industry."

imo, market is valuing ADO with a big PE for its huge potential.

earnings in 2011 could be near the $2mil mark? assuming that the coy becomes cash positive by middle next year. so currently it's a PE of 40?

so is such a PE justified??

1. as mentioned in that excerpt:
"The biotech industry may sell at an infinite price-earnings ratio because there may not be any earnings.
check out some of the PE for biotech coys. http://ycharts.com/calculations/rankings/industries/Biotechnology/pe_ratio ranges from 1-102.

2. if ADO signs up with players from another market (IVD/POC) - ADO will tap into that vast market, earnings will be >10fold that earned from current market.

3. the IVD sector grew from 6-10billion this year, so that's like a 60% jump. so earnings should also be growin?

so really, PE for ADO can reach up to that 100 or more (ie up to 200mil MC) especially when we have 47 potential players in talks of a deal and when there's ann of Roche, or invitrogen signing up and then tapping that 50-120mil pa.

with these sort of potential, it's really hard to know what PE to value ADO.

i guess with ADO, its about getting in early and holding - the increased awareness and the increased deals will ensure SH are handsomely rewarded.